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Whatever happened to the brilliant plan to merge State-owned banks?
What you need to know:
- What is emerging is that powerful interests want the status quo to be maintained.
- At 44, we have too many banks in this country. Worse, this sector is far too fragmented.
- Too many small banks and the fragmentation is why we don’t have a working active horizontal repo market.
Should we or shouldn’t we consolidate and merge some of the state-owned banks? I always get inspired when I see this country’s leadership grappling to introduce what I consider to be big game- changing economic reforms and policies.
But what intrigues me even more is what, perhaps, I would describe as the politics of resistance to big and good ideas and policies.
As I follow developments, it is exciting to observe how elite groups with vested interests in maintaining the status quo behave when confronted with change and big ideas.
Interests suddenly coalesce, the lobbying picks up, and tactics are employed by power-broking networks to undermine, delay or reverse visionary ideas and policies.
That is why, when I grow up, I intend to write a book about the political economy of policy-making in Kenya’s post-liberalisation era.
Currently, intriguing games are playing out behind the scenes to delay and undermine what I consider to be one of the game-changing ideas in the banking sector.
If you have been out of the loop in this saga, here is bit of background information.
In May this year, President Uhuru Kenyatta directed that some State-owned banks be consolidated into one.
The President was at State House during an occasion where he was being briefed on the progress in the implementation of the recommendations of the reform committee led by his economic adviser, Mr Abdikadir Mohamed, and the banker, Mr Isaac Awuondo.
According to reports, President Kenyatta challenged the committee to work out details on how this good idea could be implemented.
This was not just a populist stunt made by the president in the heat of the moment.
FRAGMENTED BANKING SECTOR
In July, the issue was taken to the Cabinet which endorsed it by way of a formal resolution.
You would expect that things would proceed smoothly and quickly especially after endorsement of such a good idea by both the President and the Cabinet. But what is emerging is that powerful interests want the status quo to be maintained.
Expect to see moves to delay and sidetrack this idea. If it happens what you are likely to see is a slow and incremental process characterised by twists, turns and attempts to reverse the proposal.
I see the proposals being implemented intermittently or in cycles, with vested interested and their allies fighting at every stage to undermine, neuter and modify the idea as proposed, if only to prove that what the President suggested is not practically workable.
But is there a strong case for consolidating some of the State-owned banks? Is this idea of merging some of them in the long term interest of the country?
The answer is an unambiguous Yes. I see it as the first step at consolidating the banking sector.
At 44, we have too many banks in this country. Worse, this sector is far too fragmented.
The big-tier banks don’t lend money to one another. That is why whenever we had a big IPO where liquidity moved to a few receiving banks, some of the smaller banks, with no credit lines with the big banks faced crippling liquidity problems.
Too many small banks and the fragmentation is why we don’t have a working active horizontal repo market.
EXPANDING NIGERIAN BANKS
In 2006, the Nigerians reduced the number of their banks from 89 to 24.
A few, strong and heavily-capitalised institutions is the reason Nigerian banks have expanded everywhere in Africa. We need to create global players.
Recently, the government put out a list of flagship project to be implemented during the second medium plan of Vision 2030.
How many of our banks have the capacity to finance some of these large projects?
The answer is none. In view of the Central Bank of Kenya’s prudential guidelines which limit lending to capital, and considering the average deal size in most of these flagship projects, our banks don’t have the wherewithal.
In the market for government securities, we have been talking about how to increase efficiency and bring down interest rates by introducing primary dealers.
Which of the State-owned banks have the capital base to take on such roles?
